Oct 16, 2012

ASEAN - ASEAN Equity Preview SM Investments Corp, PTT, Bumitama, Sembcorp

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Despite the positive signals on consumer spending, the economy faces stiff headwinds from abroad.

The New York Fed’s “Empire State” general business conditions index registered minus 6.16 in October — an improvement from the prior month but less of one than was expected.

It was the third straight month the index pointed to contraction in activity in New York state manufacturing, and the latest sign that the cooling of the global economy is being felt at American factories.

Economic growth has slowed around the globe as Europe’s debt crisis has weighed on demand for manufactured goods, including those from China.

Worries about the European crisis and the possibility of belt tightening next year by the U.S. government have led many companies to postpone investments. For now, at least, consumer spending appears to be making up for some of that weakness.

SM Investments Corp

Tycoon Henry Sy-led SM Investments Corp. has raised $500 million from the sale of overseas bonds at one of the lowest rates snagged by a Philippine corporate issuer for a seven-year tenor.

SMIC on Thursday said it had priced the seven-year offshore bond issue to yield a fixed rate of 4.25 percent a year.

The issue was “substantially oversubscribed,” attracting subscriptions worth $3.1 billion from institutional and private banking investors in the Philippines and across Asia and Europe, allowing SMIC to upsize the issue from the initial indicative size of $200 million.

The bond issue is a debt management exercise that will further lengthen SMIC’s debt profile and take advantage of the much-improved interest rate environment.

“This exercise is also our way of maintaining our presence in the bond market and fostering a sustainable relationship with the international investment community,” SMIC executive vice president and chief finance officer Jose Sio said in a statement.

Citi, Deutsche Bank and J.P. Morgan acted as joint lead managers and joint bookrunners for the transaction.

SMIC was originally planning to issue seven- and 10-year bonds but decided to issue only seven-year bonds to take advantage of the low interest rates, said company investor relations chief Cora Guidote.

Guidote said a 10-year tenor would have been expensive to issue offshore at this time.

The conglomerate, through various subsidiaries, is the dominant player in Philippine banking, shopping mall and retailing businesses. It is also a fast-growing player in residential condominium and hotel/convention center development.

The last time SMIC ventured into the overseas bond market was in February this year, although that involved a convertible bond issue rather than a straight bond offer. In February, SMIC raised $250 million from the sale of offshore five-year bonds, which investors can convert into equity. This was the first convertible bond offered out of the Philippines this year.

Also, SMIC had a $400-million issue and bond exchange in 2010. This was the first ever liability management transaction by a Philippine corporate issuer.


PTT Plc, Thailand’s energy flagship, expects to introduce US-dollar-denominated debentures worth up to US$2 billion to take advantage of high liquidity and low interest rates in the US.

The 10-year bond issue is expected by the end of this month or early next month, said chief financial officer Surong Bulakul.

Proceeds from the debentures will finance business expansion at PTT and support the capital increase of PTT Exploration and Production Plc. Details of the debentures will be finalised next week.

“Now is a good time to launch the debentures, as the US economy is recovering and China is seeing a slowdown while the political situation in Thailand has stabilised,” said Mr Surong.

He said big flooding is unlikely this year, and the stock market is in good shape, with the SET index closing near 1,300 points yesterday.

Previous debentures by PTT have an average maturity of seven years, but a length of 10 years is better suited for the longer-term plans of the company.

Foreign investors have shown confidence in the company’s debentures, said Mr Surong.


Malaysia’s palm oil output jumped by a higher-than-expected 20% m-o-m to 2.004m MT, as returning workers harvested uncollected fruits during the Eid festival the previous month. This distortion was unaccounted for in our output forecast of 1.859m MT. FFB yields in Sabah, Sarawak Johor, and Pahang rebounded by 14-28% m-o-m. Sabah FFB yields, which until Aug12 had been 14% below last year, have now almost closed the gap, to only 1% lower y-o-y. However, we expect Oct12 output to remain flat m-o-m; taking into consideration the jump in Sep12 output, followed by a seasonal peak in Oct12.

Against the higher production, the pace of Sep12 exports had decelerated to 4% m-o-m from 11% in Aug12. Stronger exports to India and China were partly offset by drops in shipments to Pakistan, EU, US and Egypt. Reflecting this, end Sep12 palm oil inventory jumped 17% m-o-m to 2.481m MT (highest on record). When examined closely, the CPO inventory level had jumped by 35% m-o-m; while processed palm oil inventory actually declined 5% m-o-m. Hence, despite the higher duty-free export quota, there was a lack of CPO exports during the month.

At the current level, we suspect CPO storage is close to the tanks’ capacity. Two things should happen: (1) CPO exports need to be jolted with fire sale prices (2) Planters need to cut down on harvesting to prevent wastage and to conserve cash amidst weak CPO prices. We believe these actions should temporarily address Malaysia’s inventory overhang. However, the refinery industry’s feedstock cost issue still needs to be tabled to provide a more lasting solution.

Sembcorp Industries

Sembcorp Development, the wholly-owned urban development business unit of Sembcorp Industries, is co-developing a residential project, Gateway, in Binh Duong province, Vietnam.

A joint venture agreement has been signed between Sembcorp Development Vietnam, a newly incorporated wholly-owned subsidiary of Sembcorp Development, and its partner, Vietnam Singapore Industrial Park Joint Venture Co. (VSIPJV). VSIPJV is the developer of the Vietnam Singapore Industrial Park (VSIP) projects across Vietnam. It is a 49:51 joint venture between Becamex IDC and a Singapore consortium led by Sembcorp Development respectively. Sembcorp Development holds an effective 47.4% stake in VSIPJV.

Under the agreement, Sembcorp Development Vietnam and VSIPJV will incorporate a joint venture company in Vietnam with 40% and 60% shareholding respectively to develop Gateway. The total project development cost is estimated to be US$165 million, which will be undertaken over several phases from 2013. The project will be built in tandem with demand, and is estimated to be developed over eight years or more.Sembcorp Development Vietnam’s equity investment of US$5.2 million will be internally funded.

Gateway is part of a larger mixed-use development within the 500-hectare VSIP in Thuan An district, Binh Duong province, which has been operational since 1996. Gateway sits on a 4.1-hectare land plot which will be developed into a mid-market residential project of about 163,807 square metres gross floor area, comprising 1,380 apartment units and amenities. Phase one will comprise two blocks of 250 apartment units. Gateway is part of the developer’s efforts to develop projects that complement the functions of VSIP, delivering an integrated urban work and living environment that enhances the attractiveness of VSIP.

The above transaction is not expected to have a material impact on the earnings per share and net asset value per share of Sembcorp Industries for the current financial year.

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